KKR Lends Support to Spanish Construction

If you’re a Spanish construction-materials company, you can’t be getting a lot of love these days.

But private-equity giant Kohlberg Kravis Roberts announced this morning that it’s lending €320 million ($420 million) for seven years to Uralita SA, a Madrid-based maker of insulation, roofing tiles, pipes and other bits and pieces that built the now-deflated Spanish housing bubble. Uralita will use the proceeds in part to repay its current lenders.

The deal doesn’t mean happy times are here again on the Iberian peninsula. “We’re not putting a stake in the ground right now making a big macro call,” says Nat Zilkha, co-head of KKR’s special-situations group. Uralita has been badly pounded by the Spanish economy—sales last year were €621 million, down from €1.01 billion in 2008—but more than a quarter of its sales now come from Eastern Europe and Russia, which is growing even if Spain is shrinking.

“Within this, quote, “distressed” Spanish situation was actually a very, very good company that was saddled with a bad capital structure,” Mr. Zilkha says.

Uralita does reflect the massive disruption in European corporate credit that the crisis has caused. Large companies could once turn to local banks for lending. Those banks, inflated during the bubble, are now cutting back. Corporate Europe has traditionally raised relatively little money through bond markets, and those are now shut to the vast majority of potential borrowers anyway.

That leaves the alternative investors. KKR, Blackstone and others are trying to fill the void—for a price.

Blackstone charged Cementos Portland interest of 10% ; before the crisis, the company had issued a seven-year, $100 million bond at just 6%.

KKR and Uralita didn’t disclose the rate, though Mr. Zilkha said generally that “alternative sources of financing are more expensive than traditional bank lenders or the bond market.”

Javier Gonzalez, Uralita’s general counsel, said KKR charged rates “similar” to Uralita’s existing bank and bond-market lending. He said Spanish securities regulations don’t oblige the company to provide more detail on funding costs. In a February presentation to analysts, Uralita said in 2012 it paid interest and other financial costs of €27 million, a bit over 8% of its €319 million in debt at year’s end.

Private-equity firms, hedge funds and others have for more than a year been sniffing around southern Europe in search of good deals. Many have waited, so far in vain, for a large wave of asset sales by European banks. But while banks aren’t rapidly selling off loans, they are getting tighter with new lending, or with extending credit to their existing customers. Enter KKR. “Our pipeline is bursting with these,” says Mr. Zilkha.